January 26, 2013

Oregon HOA's lose out on liens after foreclosure (probably)

I'm the secretary of our planned community's homeowners association (HOA). Our HOA has had to file liens on property owners who fail to pay their dues two years in a row.

The dues are only $185 a year. Payment plans are allowed. Volunteers do a lot of the work needed to maintain the common property (we also hire a contractor for mowing, spraying, bark mulching, and such). When dues aren't paid by some of our 90 property owners, the other owners have to make up the lost money.

Being the secretary, I have the not-so-fun duty of filing the liens with Marion County. I don't like doing this, especially if the person/people behind in their dues are having a tough time financially.

But I know that our HOA needs to be sure that even if dues aren't paid while someone is living here, when they sell their property the lien will have to be honored. Meaning, the HOA will finally get the unpaid dues.

I was wrong about being sure. Well, probably I was wrong.

We're still trying to figure out the legal ins and outs of what happens to a HOA lien in Oregon when a property goes into foreclosure. Currently it sure looks like HOA's get screwed (a non-legal but apt term) if a bank forecloses on a property that has a lien for unpaid dues on it.

I discovered this late last year after I got a phone call from a title company that would go nameless if I didn't call it AmeriTitle. A woman wanted to know what the annual HOA dues were, saying that the property was up for sale after being foreclosed on by a bank that also would go nameless if I didn't call it Wells Fargo.

I told her, adding "Of course, there is a lien on the property for unpaid dues, which I assume will be paid." That simple comment led to a series of complex back-and-forth exchanges between me, our HOA treasurer, AmeriTitle, and Wells Fargo.

In the end, we got stiffed (another non-legal but apt term). After several fruitless attempts to learn what the legal basis was for not honoring the HOA lien, I got a response from Amerititle that said:

Per Oregon Statute 94.709 ‘Whenever a homeowners association levies any assessment against a lot, the association shall have a lien upon the individual lot for any unpaid assessments…The lien is prior to a homestead exemption and all other liens or encumbrances upon the lot except:…(b) A first mortgage or trust deed of record.’

Per Oregon Statute 94.723 Common expenses; liability of first mortgagee, once a lot in a planned community is foreclosed upon the ‘mortgagee and subsequent purchaser shall not be liable for any of the common expenses chargeable to the lot which became due before the mortgagee or purchaser acquired title to the lot. The unpaid expenses shall become a common expense of all lot owners including the mortgagee or purchaser.’.

Per Oregon Statute 94.712 ‘An owner shall be personally liable for all assessments imposed on the owner or assessed against the owner’s lot by the homeowners association.’ Accordingly, the servicer on this property, Wells Fargo, paid the past due amounts owing against the lot according to the state statute, which is from the foreclosure sales date forward.

So we got paid for the few months of unpaid dues that accrued between the time Wells Fargo foreclosed on the property. But not for the several years of unpaid dues prior to that date. Seems unfair to me.

Our HOA lost out on about $300. However, another foreclosed property in our development owes considerably more. Those dues go to pay for maintenance of the common property, an asset of our community which increases considerably the value of homes and bare lots.

Sixteen states reportedly give HOA liens a "superlien" status, treating them as akin to property taxes: a bill that has to be paid by whoever forecloses on a property. I agree with this:

"The argument that HOAs should be senior to everything is like property taxes — they are part of preserving the collective value of the neighborhood," says Goodman, who represents servicers, HOAs and investors in distressed properties.

Confusing the issue, my Googling revealed quite a few references to Oregon being a superlien state. However, when I checked out the Oregon Statutes cited in the AmeriTitle letter (ORS 94.709, 94.723, 94.712), it sure seems like HOA liens get wiped out in a foreclosure.

Again, unfairly.

Wells Fargo is making plenty of money, along with other banks -- $4.9 billion in the third quarter of 2012. Billion. But they refused to pay our HOA $300 for dues that went toward increasing the value of the home and lot they foreclosed on, and recently sold.

Our HOA board of directors will have to decide what to do in the future, if it turns out that our liens for unpaid dues indeed are wiped out in a foreclosure. We could go after the previous owner who failed to pay the dues.

Collection Agency? Small Claims Court? Maybe.Since they refused to pay their dues while they lived here, almost surely a polite letter asking for the money is going to have even less effect after they've moved on following the foreclosure.

It's a tough situation.

I can (sort of) understand why a bank or other mortage holder doesn't feel like they're responsible for dues incurred by the owner of the property being foreclosed on. However, the bank is reaping the benefits of our HOA's maintenance work on the common assets of our development.

Oregon law may be on the banks' side. Right and wrong, though, often is different from lawful and unlawful.

If anyone reading this knows more about the subject of HOA liens and foreclosures than I do, a highly distinct possibility, please leave a comment and enlighten me. Or email me (link in the sidebar).